44 Accused Of Web Stock Fraud

3 Florida Firms Named In Nationwide Sweep

October 29, 1998|By HUMBERTO CRUZ Business Writer

In a first-of-a-kind sweep, regulators from coast to coast have filed 23 civil suits against 44 people and companies accused of committing securities fraud over the Internet and of deceiving thousands of investors around the world.

According to complaints filed by the Securities and Exchange Commission, promoters touted the stocks of 235 "microcap" or very small companies without disclosing they were being paid to recommend the stocks. And, in some cases, the promoters made quick and big profits by selling the same stocks they were touting online, the SEC said.

It is impossible to tell how many investors were defrauded or how much money they lost, SEC officials said, but the profits to stock promoters were in the millions.

"Investors who use the Internet need to be aware that what they are reading may not be objective advice, and that there may be people using the Internet for their own gain," said Randall J. Fons, regional director of the SEC in Miami, whose office handled two of the cases.

One involved a Fort Lauderdale company, Princeton Research, accused of touting the stocks of five small companies without disclosing that Princeton Research and its president, John Wesley Savage, had received a total of 276,500 shares and 75,000 stock options from them.

The five companies recommended were Casmyn Corp., Treasury x International Inc., Plenum Communication, JTS Restaurant and Turbodyne, the SEC said in a complaint filed in U.S. District Court in Miami.

Savage and Princeton Research also "made material misrepresentations" about two other companies they recommended, Energy Optics and IRT Industries, the SEC said.

Without admitting or denying wrongdoing, Savage and Princeton Research consented to pay a civil fine of $40,000 and to be permanently enjoined from the securities laws violations outlined in the SEC complaint, Fons said. have left message with savage's atty/hc

In another case, the SEC's Miami Fons' office is seeking a cease-and-desist order against Global Information Services of Clearwater, which runs Investment Hotlines Online, a Web site containing online corporate profiles and press releases prepared by the companies featured on the site.

The SEC said Investment Hotlines and its president, James E. Grady, did not adequately disclose that they charged four of the featured companies $1,500 each to promote them, and that they also received about 200,000 shares of common stock from seven other companies. The disclosure appeared on a Web page apart from the "Featured Investment Opportunities" page, and was accessible only by a link from the site's home page, the SEC said.

In a third Florida case handled by the SEC's main office in Washington, the commission is seeking a permanent injunction, civil penalties and disgorgement of "unjust profits" from Stockstowatch.com in Sarasota, an online service that at one point claimed to have more than 200,000 subscribers.

According to the SEC, the company and its president, Stephen A. King, made a profit of more than $1 million by selling the stocks of at least five small companies while simultaneously touting them on the Internet.

Four other actions were filed by the SEC office in Washington; three in Chicago and Denver each; two each in New York, Los Angeles and Fort Worth, and one each in Atlanta, Boston, Philadelphia and Salt Lake City.

"This sweep demonstrates the SEC's commitment to cleaning up the Internet by aggressively prosecuting securities violations occurring in cyberspace," said Richard H. Walker, the commission's director of enforcement. The SEC, however, has no authority to put people in jail. It can only seek civil penalties and kick people out of the industry.

The SEC action comes five weeks after the agency filed civil suits nationwide in what regulators said were 13 other schemes involving microcap stocks. Those stocks were fraudulently promoted by telemarketers and, in some cases, also over the Internet, the SEC said.

Walker said the 23 new cases focus specifically on Internet fraud and involve the use of so-called "spam" or online junk mail, online newsletters, message board postings and World Wide Web sites to tout 235 microcap stocks, generally with a market value of less than $300 million.

For many beginning investors, the pitch was hard to resist.

''I was extremely new at this sort of thing, and the information, especially the press releases, looked very good to me," said an investor who bought 500 shares of what is now a worthless stock based solely on what he read about it on the Internet. ''..... I also believed what was being said on the message board by the 'experts,'." the unidentified investor said in a letter to the SEC.

Altogether, the promoters failed to disclose they had received a total of more than $6.3 million and nearly 2 million shares of cheap insider stock and stock options in exchange for touting the shares, Walker said.